Socializing losses, privatizing gains
Major U.S. airlines have received more than $50 billion in grants in multiple rounds of taxpayer-funded bailouts during the pandemic. As travel begins to rebound and the stock market cruises to record highs, Andrew asks in his latest column: Was the rescue worth it?
The good news: The bailouts probably saved as many as 75,000 jobs and kept the airlines from declaring bankruptcy.
The bad news: Taxpayers probably overpaid, with the original grant of $25 billion implying that each job cost the equivalent of more than $300,000. (That price grew with subsequent bailouts.)
The biggest beneficiaries were airline shareholders. That includes the carriers’ executives, who have been paid in stock for years. Propped up by taxpayers, airline stocks are up nearly 200 percent from their pandemic trough, and have largely recovered their losses.
Was it really necessary? No other industry received more government help during the pandemic. But private investors seem willing to throw money at everything these days, and the Fed’s stimulus kept the credit markets open.
U.S. airlines were able to issue more than $30 billion in bonds last year, in some cases backed by their loyalty programs.
Boeing and Carnival Cruise Line also raised billions in debt from private investors.
United Airlines invested $20 million last month in an electric air taxi company that went public via a SPAC. It received a third government rescue payment after the deal.
We’ll never know what would have happened without the bailouts. The airlines say the government grants were crucial: As American Airlines put it, they “saved thousands of airline jobs, preserved the livelihoods of our hard-working team members and helped position the industry to play a central role in the nation’s recovery.”
Continue reading the main story
ADVERTISEMENT
There are conditions attached to the rescues, including halting share buybacks and limiting C.E.O. pay. But other things, like stock warrants issued to the government, are worth a small fraction of the grants the airlines received (unlike the majority equity stake that the government took when it rescued G.M. as part of its bankruptcy in 2009).
The debate about the appropriateness of the bailouts is just beginning, Andrew writes. “After the banking crisis of 2008 led to bailouts, the recriminations began when firms like Goldman Sachs had a banner year in the aftermath — and paid bankers record bonuses.” Will the same thing happen to the airlines?
HERE’S WHAT’S HAPPENING
Uber will classify British drivers as “workers.” The ride-hailing service’s decision will entitle more than 70,000 drivers to a minimum wage, vacation pay and access to a pension plan, but stops short of making them employees. It comes in response to a British Supreme Court ruling last month.
Wall Street firms plan for in-office workers. JPMorgan Chase expects summer interns in New York and London to work at the office. And Ralph Schlosstein, the co-C.E.O. of Evercore, told Bloomberg Television that he hoped to have some summer trainees “at least be partly in the office.”
The F.T.C. weighs a tougher approach for pharma mergers. The regulator plans to revamp its process for reviewing deals involving drug makers, following an investigation by Representative Katie Porter, Democrat of California, into the impact of consolidation. It’s the latest sign of the Biden administration’s stance on antitrust.
Continue reading the main story
ADVERTISEMENT
Treasury Department opens a racial equity review. It will examine its policies in an effort to ensure economic fairness, a priority of Treasury Secretary Janet Yellen. The review will be led by Adewale Adeyemo once he is confirmed as deputy Treasury secretary.
The buyer of Jeffrey Epstein’s Manhattan mansion is revealed. Michael Daffey, a former Goldman Sachs executive, paid $51 million for the residence after racking up big gains on Bitcoin.
The New York Times